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Ask Marilyn: This Week's 'Strictly Personal' Question

S. in Santa Cruz, California, writes:

Marilyn: I'm a 60-year-old baby boomer who, like many others, lost all of my home equity in the recent economic downturn. Although my mortgage is underwater, it would pay for itself if I rented out the entire property (three units). My goal was to own it outright by the age of 66. Fortunately, I have good health and a good job, and although I used to joke about working until the age of 95, I don't really want to do that.

I have been considering various possibilities for financial survival after retirement such as buying a cheaper place and renting this place, the problem being qualifying for another loan while keeping the loan I have. Although my credit has been excellent in the past, a short sale of my former home hurt it. Even if I could get into a cheaper place, there is the question of whether to hang on to this property or not. Some people say market values with return one day; I'm not so sure.

Another possibility is to walk away, collect the rent and let it go to foreclosure. That would give me a chunk of money to apply to a new cheaper place (called "buy and bail"). If I buy something now while working, I could at least begin to pay for it; if I were retired, I couldn't buy anything unless I paid cash.

I'm unclear about whether to wait or try to make a move now, and I'm afraid to do anything because of my previous failures, so I sit here stuck. I don't want to make a poor choice just because I'm so uncomfortable with this financial scenario. Do you have any suggestions or other possibilities I could consider? Marilyn responds:

You don't mention anything that has changed except the value of your home. So you should be able to continue making the payments as you always have, no? Or have you decided that you want to retire, in which case you'll have much less income and be unable to make the current payments? If so, have you considered staying where you are, continuing to work as long as you can—which would be great for you, both mentally and physically—and renting out a part of your place?